The Cost of Surety Bonds -
Changes for Texas Dealers
Texas Dealer Bonds of the Past
30+ years ago, when my interest in insurance first turned to providing coverages for Texas Independent Auto Dealers, the approach to dealer bonds was completely different than it is now.
For instance, all dealer bonds renewed on the same date, April 1. I remember the dealers standing in line outside of the office where I worked. We would be open on a Saturday or stay late or whatever was necessary to satisfy every dealer who came to our office. While dealer bonds had a required surety bond amount of $25,000, the premium—almost across board with every company- was $500 for the two-year bond. There was little to no underwriting, i.e. the dealer showed up, completed an application and we provided a dealer bond. No muss, no fuss!
Surety Bond Changes Over the Years
After much lobbying and work by members of the industry, the rate per thousand was lowered and, today, the same $25,000 bond is readily available at $250 – sometimes less. Of course, each surety company has its own underwriting guidelines and all of them include bond holder credit ratings. The individual credit ratings ultimately determine the price of the bond and bonds classified as high risk can cost up to $5,000 for the two-year period.
Another change in the bonding process was the term dates. The state eliminated the statewide renewal date of April 1 and instituted a renewal date based on date of inception. Bonds are still two-year instruments, but now expire at two years from date of inception.
The New Change in Texas Dealer Bonds
As of September 1, 2021, we have another change in the Texas dealer bond requirements:
“Texas House Bill (HB) increases the amount of the surety bond from $25,000 to $50,000 that an application must provide to the Texas Department of Motor Vehicles as a condition of a new or renewed motor vehicle dealer or wholesale motor vehicle auction general distinguishing number. HB 3533 was approved by the governor on June 14, 2021 and becomes effective on September 1, 2021.” (Corporate Compliance Bulletin TX -2021-37)
Because the rate per thousand is currently unchanged, the resulting cost of dealer bonds will double for the same two year period to correspond with the doubling of the protection.
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MULLEN INSURANCE AGENCY, INC
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